President William Ruto's Kenya Kwanza administration on Wednesday, July 12, announced a major financial stride in the bond issuance by the Central Bank of Kenya.
In a clear indication of Kenyans' confidence in President Ruto's economic plan, the results of the Financial Year 2023/24 debut bond issuances showed that CBK received bids amounting to Ksh51.76 billion.
This demonstrated a major success noting that Central Bank had initially offered Ksh40 billion bonds, but received an over-subscription of more than 29 per cent.
In the remittance structure, the government accepted Ksh38.57 billion in bids, which is slightly less than the amount offered. This is likely because the government wanted to ensure that it could afford to pay the high coupons on the bonds.
According to CBK, the government drew a coupon on the 5-year bond at 16.84 per cent, which is the highest coupon on a Kenyan government bond since 2013.
The high coupon ratio is a sign that investors are demanding higher yields in order to compensate for the high levels of risk in the Kenyan economy.
CBK's bond structure and the successful issuance of the debut bonds is a positive sign for the Kenyan economy. It shows that investors are still willing to lend money to the government.
The money received from the bids will help the government to finance its budget deficit and to continue investing in infrastructure and other development projects.
Meanwhile, a high coupon on the bonds is a sign that investors are concerned about the risks in the Kenyan economy. These risks include the high level of debt, the political instability, and the economic slowdown.
In light of the factors that contribute to economic stability, if the risks do not abate, then the government may have to continue to offer high coupons on its bonds in order to attract investors.
In the long run, the high-interest rates could put a strain on the government's finances pushing President Ruto's administration to reconsider its offering.
Presently, one of the major financial concerns for investors is political stability in the wake of the ongoing protests by the Azimio la Umoja coalition.
Former Prime Minister Raila Odinga had threatened to continue with the protests up until when their demands are met and addressed.
Among other grievances, Azimio la Umoja is demonstrating against the rising cost of living, the introduction of new taxes in the Finance Act, 2023 and the re-constitution of the Independent Electoral and Boundaries Commission (IEBC).
